Forms of business activity

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Forms of business activity

  1. 1. FORMS OFBUSINESSORGANISATION
  2. 2. Business Organisation There are five main forms of business organisation in the private sector . There are :1. Sole Trader2. Partnership3. Private limited companies4. Public limited companies5. Co-operatives
  3. 3. Sole TradersA business owned and operated by one person.The owner is responsible for all operations of the business and assumes all the risk.
  4. 4. Legal Requirements  The owner must register with and send annual accounts to the government Tax Office. They must register their business names with the Registrar of Business Names. They must obey all basic laws for trading and commerce.
  5. 5. Advantages of a Sole Traders Owner makes all decisions Owner is her or her own boss Owner keeps all the profits All financial informatio can be kept secret This type of business is easy to start or close
  6. 6. Disadvantages of a Sole Traders Owner has responsibility for all debts Costs and time commitment can be high Funding can be difficult to obtain Owner is responsible for all aspects of the business Owner doesn’t have fringe benefits
  7. 7. Partnershipa form of business organization in which two or more people own and operate the business together
  8. 8. Recommended to people who: Want to make a bigger business but does not want legal complications. Professionals, such as doctors or lawyers, cannot form a company, and can only form a partnership. Family, when they want a simple means of getting everybody into a business
  9. 9. Advantages of a partnership Partners co-own the business They share responsibilities They may have greater financial resources than sole proprietors They share business losses They share time commitment
  10. 10. Disadvantages of a Partnership Partners have unlimited personal liability for all the other partners They may have conflicts Profits are shared Partnerships are more difficult to close down than sole proprietorships Agents of the business dillemma
  11. 11. Private Limited Companies Private Limited Companies have separate legal identities to their owners, and thus their owners have limited liability. The company has continuity, and can sell shares to friends or family, although with the consent of all shareholders. This business can now make legal contracts. Abbreviated as Ltd (UK), or Proprietary Limited, (Pty) Ltd.Consent-Permission for something to happen or agreement to do something
  12. 12. Advantage of Private Limited Companies The sale of shares make raising finance a lot easier. Shareholders have limited liability, therefore it is safer for people to invest but creditors must be cautious because if the business fails they will not get their money back. Original owners are still able to keep control of the business by restricting share distribution.
  13. 13. Disadvantage of Private Limited Companies Owners need to deal with many legal formalities before forming a private limited company: # The Articles of Association: This contains the rules on how the company will be managed. It states the rights and duties of directors, the rules on the election of directors and holding an official meeting, as well as the issuing of shares.
  14. 14. Disadvantage of Private Limited Companies # The Memorandum of Association: This contains very important information about the company and directors. The official name and addresses of the registered offices of the company must be stated. The objectives of the company must be given and also the amount of share capital the owners intend to raise. The number of shares to be bought b each of the directors must also be made
  15. 15. Disadvantage of Private Limited Companies # Certificate of Incorporation: the document  issued by the Registrar of Companies that will allow  the Company to start trading. Shares cannot be freely sold without the consent of all shareholders. The accounts of the company are less secret than  that of sole traders and partnerships. Public information must be provided to the Registrar of  Companies. Capital is still limited as the company cannot sell  shares to the public.
  16. 16. Public Limited Companies Public limited companies are similar to private limited  companies, but they are able to sell shares to the  public. A private limited company can be converted into  a public limited company by: # A statement in the Memorandum of Association must  be made so that it says this company is a public limited  company. # All accounts must be made public. The company has to apply for a listing in the Stock Exchange. A prospectus must be issued to advertise to customers  to buy shares, and it has to state how the capital raised  from shares will be spent.
  17. 17. Advantages of Public Limited Companies Limited liability. Continuity. Potential to raise limitless capital. No restrictions on transfer of shares. High status will attract investors and  customers.
  18. 18. Disadvantages of Public Limited Companies Many legal formalities required to form the  business. Many rules and regulations to protect  shareholders, including the publishing of annual accounts. Selling shares is expensive, because of the  commission paid to banks to aid in selling  shares and costs of printing the prospectus. Difficult to control since it is so large. Owners lose control, when the original owners  hold less than 51% of shares.
  19. 19. Co-operative Businesses owned and operated by a  group of people with a strong common  interest Start-up costs are shared among the  members of the co-operative Members own and control the business  and make all business decisions
  20. 20. Disadvantages of a co-operative Because each member only has one  vote, members may not want to invest  money for expansion Because of the number of members,  making decisions can be difficult Members can have conflicts
  21. 21. Joint venturesTwo businesses agree to start a  new project together, sharing  capital, risks and profits.
  22. 22. Advantages of Joint ventures Shared costs are good for tackling expensive projects. (e.g aircraft) Pooled knowledge. (e.g foreign and local business) Risks are shared.
  23. 23. Disadvantages of Joint ventures Profits have to be shared. Disagreements might occur. The two partners might run the joint venture differently.
  24. 24. FranchiseA business in which a franchisor sells to another person, called the franchisee, the rights to use the business name and to sell a product or service in a given territory
  25. 25. Advantages of a franchise Franchisees buy a business with a good reputation Franchisors supply training and financial knowledge Franchisors usually provide packaging, advertising, and equipment to the franchisee
  26. 26. Disadvantages of a Franchise Franchises can be expensive to buy Franchisees may have to follow a lot of rules laid down by the franchisors If a franchisor’s business fails, so will the franchisee’s business
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